Last year, Vanderbilt professor Brian Fitzpatrick made the bold argument that class action plaintiffs’ attorneys aren’t paid enough. Now, the University of Pennsylvania Law Review’s online presence, PENNUmbra, has a response by University of Arizona professor David Marcus.
Marcus levels several criticisms against Fitzpatrick’s proposal. I’m going to ignore the easy ones and focus on two of his more interesting arguments. First, Marcus focuses on the effect of the Rules Enabling Act:.
Fitzpatrick believes that Federal Rule of Civil Procedure 23(h), which licenses "reasonable" fee awards in class actions, permits courts to do what he urges. But the REA prohibits rules of procedure that "abridge, enlarge or modify any substantive right," and this limitation might preclude an interpretation of "reasonable" to include such all-encompassing fee awards. An order giving the lawyer everything would effectively assign class members’ claims to their counsel without their consent. Doctrine that regulates claim assignment is substantive law, and the Federal Rules themselves may not modify these assignments. Although the issue is quite complicated, Rule 23(h) might violate the REA’s substantive rights limitation if applied in the manner Fitzpatrick desires.
(Footnotes omitted, emphasis added.)
His second critique is even more interesting: it appears Fitzpatrick may have made a basic math mistake and overestimated the deterrent effect of imposing 100% attorney fees. As Marcus explains:
[F]ee awards of the ilk Fitzpatrick prefers might cause a net deterrence loss. His proposal would apply in all cases involving minor per capita recoveries. But a case’s aggregate value determines whether the game is worth the candle for the plaintiffs’ lawyer. As a recent case illustrates, potential damages of three dollars per class member would hardly thwart litigation if the case as a whole might win $ 9.5 million. n25 Fitzpatrick’s proposal might produce a greatly diminished settlement in this sort of case. Presently, if an attorney wants $ 2.5 million in fees, she must obtain a $ 10 million settlement. But if the lawyer gets 100% of the recovery, a $ 2.5 million settlement would earn her the same amount. The defendant could take advantage of class counsel’s higher rate of return and discount a settlement offer by $ 7.5 million. A risk-averse plaintiffs’ lawyer might accept such an offer, and there are reasons to think that risk aversion would be likely in this context. Whatever additional deterrence the eschewed $ 7.5 million might have created vanishes.
(Footnotes omitted, emphases added.)
What does this mean for day-to-day class-action practice? Not much, because realistically, there’s not much chance that courts will adopt Fitzpatrick’s proposal. But then, I suspect Fitzpatrick didn’t make the argument in order to get it adopted; I suspect he wanted to kick off a robust debate about attorneys’ fees. He’s certainly done that, and Marcus’s has provided a thought-provoking response.